Page 36 - The Pakistan Accountant July-September 2017

Signature Qualification CA that Empowers to Lead PAKISTAN Islamic Banking Islamic Banking and Finance by Muhammad Tayyab Dar Abstract modernists and secular historians consider it an invented tradition. This article is about Islamic banking and finance, modes in Islamic But certain revivalists believe that the basic principles are derived banking and Islamic banking in Pakistan and all over the world. mainly from Sunnah and Quran so, Islamic banking is as old as The market share of Islamic banks has reached to 13%. Due to Islam itself. Allah has said in the Quran: “Allah will deprive usury of its feasibility, other Muslim and non-Muslim countries have also all blessing, but will give increase for deeds of charity.” (Al-Baqara: introduced Shariah compliant finance. In Pakistan, however, due to 276) some reasons, the system was not able to give surprising results. On public level, there is a need of awareness and the government Timeline of Islamic Banking (1950-2007) should take radical steps for the establishment of Islamic banking to get rid of interest based conventional banking. Founding of Ccnventional banks Islamic Banking and Finance Simpanan Bakal-Bakal Haji open Islamic Perbadanan Wang branches Shariah compliant finance is a system of banking that follows (PBSBH) in Malaysia Founding of Dubai Islamic the principles of Islamic laws or Shariah. As Shariah does not Bank, Kuwait Islamic accounting standards organisation allow Interest or Riba, so Islamic banking is also referred to as Finance House, forms First Gulf Bank interest free banking. An Islamic bank works totally under the 1950 1960 1970 1980 1990 2000 2010 Islamic rules and plays a key role in the establishment of Islamic economics. The beauty of Islamic banking is that it is not limited First attempts Regional Global core to Muslims only. The base of Islamic banking is the prohibition of to from Islamic Bank Misr opens vendors enter vendors enter market market Islamic branches banks interest for lending and accepting of money. There are three basic prohibitions in Shariah: Founding of Mit Islamisation of Number of banks offering Islamic Ghamr Savings banking in Pakistan, ▪ Riba Bank in Egypt Iran, Sudan products expands ▪ Gharar ▪ Maysir According to Islamic economists Masudul Alam Choudhury Riba means excess, increase, or unjustified increment. Riba and and Uzair Abdul Malik, the prohibition of interest was a major working principle in Islamic economy at the time of Caliph Umar interest are same and referred as effortless gain. The great scholar (RA). Certain economic techniques had been introduced such Hazrat Shah Waliullah (RA) said that Riba “is a loan with the as bills of exchange, Mufawada (partnership) and Mudaraba condition that the borrower will return to the lender more than (limited partnership), Al-mal (types of capital), Nama-al-mal and better than the quantity borrowed.” th (capital accumulation), Sakk system (cheque). Since 9 century by the time of Harun al-Rashid, Muslim traders had started to use Gharar is an insurance agreement according to which one party Sakk system. When Islamic capitalism was established between may acquire all profit and other party may not gain any profit. eighth and twelfth century, the currency was gold dinar and Gharar and maysir are also referred to as inter-related terms as it served as a bond between regions that were economically maysir is an insurance contract in which the policy holder invests th a small amount and in turn, gets a large profit. Islamic banking independent at that time. During 13 century in Europe, certain above mentioned economic techniques had been adopted and works on two basic principles i.e. profit & loss sharing. So, in introduced. Although, terms such as “sinful usury” and “legitimate Islamic banking, there is no concept of fixed profit. interest” had been argued in 19 century by Syed Ahmed Khan, an th Islamic modernist, but could not acquire appreciable acceptance. History & Origin of Islamic Banking Later, in the 20 and 21 centuries, Islamic mode of banking was th st The foundation of Islamic banking was laid the day Prophet widely adopted and there was a gradual increase in interest-free Muhammad (SAW) went on trade for his wife. However, Islamic institutions. 34 The Pakistan Accountant July - September 2017